Automated trading system

ABSTRACT

An anonymous trading system is configured to receive a price stream from a bank or other institution. The price stream is converted into a quote stream and input into the trading system via an automated trading interface. The quote stream has its own deal code. The deal code credit limits are set so that the only parties that have credit with the deal code are other deal codes of the same institution. At least one of these deal codes represents a prime broker bank and prime broker customers therefore have access to the institution&#39;s price stream to the exclusion of other parties trading on the system. A distributor distributes the quotes from the trading system to the prime broker customers&#39; traders, to prime broker customer automated trading interfaces, and to prime broker customer deal feed systems for logging of deal tickets and communication of those deal tickets to back office systems.

CROSS-REFERENCE TO RELATED APPLICATIONS

This Application is a continuation of U.S. application Ser. No.11/202,856, filed Aug. 12, 2005, which claims benefit under 35 U.S.C.119(e) to U.S. Provisional Patent Application No. 60/601,558, filed Aug.13, 2004, the entirety of each of which is incorporated by referenceherein.

FIELD OF THE INVENTION

This invention relates to automated trading systems for trading productssuch as, but not limited to, commodities or financial instruments. It isparticularly concerned with automated trading systems that integrate twoor more sources of liquidity to improve the quality of quotes that arepresented to a user.

BACKGROUND TO THE INVENTION

Automated trading systems have been used for many years to trade a widerange of products including to financial products including commoditiessuch as precious metals and various financial instruments includingequities and foreign exchange (FX) products such as FX spot. Within theFX spot market, there are two major types of system: direct dealingsystems where deals are concluded by exchange of conversationelectronically between traders; and anonymous systems in which traderssubmit quotes into a system anonymously and quotes are matched, subjectto parameters such as credit limits. The identity of parties to a dealare only given up to the traders when the deal is completed.

Anonymous systems are one example of matching systems in which quotessubmitted by parties are matched to make a deal. Typically, visible bidsand offers are entered into the system which are matched by invisiblehits or takes from traders. The success of any such system is dependenton the liquidity of the fungible that is being traded. Liquidity isdirectly dependent on the number of quotes in the system. Liquidity iscrucial to the success of a trading system as it affects the ability ofparties to trade and the price at which they can trade. In the FX spotmarket, the majority of liquidity in various currency pairs isconcentrated in a single system. The effect is one of positive feedback;once a degree of liquidity is established traders know that they canexecute deals at the best prices on that system and therefore placeorders on that system so further increasing the liquidity in the system.

In the interbank FX spot market the majority of anonymous deals are doneeither on the Reuters Dealing 3000 Spot Matching system provided byReuters plc of London UK or on the EBS Spot Matching system provided byEBS Group Limited of London UK. The market in particular currency pairsis concentrated on one or other of these systems depending upon whichhas the majority of the liquidity in the currency pair.

An enhancement to the EBS system, available to the market as EBS Prime,is described in WO 2004/40422, which is a counterpart of U.S. appln.Ser. No. 10/694,758, the contents of each of which are incorporatedherein by reference in their entirety. This document discloses the useof prime brokers to give access to smaller financial institutions whowould not otherwise be able to trade on the EBS system, or would onlyhave access to limited prices as many parties trading on the systemwould not extend them credit. Smaller banks can trade via a prime brokerbank and the counterparty to any prime broker trade is unaware that theyhave traded with anyone other than the prime broker bank. The primebroker bank and the customer bank will conclude a deal for the sameamount but at a price which may favour the prime broker bank. The use ofprime brokerage is advantageous to the customer bank as it gives themaccess to a pool of liquidity to which they would not otherwise haveaccess; it is advantageous to the prime broker banks as it enables themto profit from third parties using their credit; and it is advantageousto the system operator and to all parties trading on the system as itincreases the number of quotes in the system, and, therefore theliquidity in the instruments being traded.

Another approach that has been taken to increase liquidity is to makedifferent liquidity pools available to customers through a singleinterface. This does not increase the liquidity of any particular systembut gives the customer access to a number of different systemssimultaneously, so increasing their chances of seeing the best availableprices in the market. An example of this type of system is offered by FXAlliance LLC under the trade mark FXAII Quotes which displays tocustomers a blended rate taken from a number of liquidity providers.This system is a portal which aggregates prices from variousinstitutions and presents the best prices to the user. Another exampleis provided by Lava Trading Inc under the trade mark Lava Colorbook® anddisclosed in U.S. Pat. No. 6,278,982. Other portal type systems areprovided by Currenex Inc under the trade mark FX Trades and State StreetCorporation of Boston Mass. under the trade mark FX Connect®

We have appreciated that there is a need to increase further theliquidity of automated trading systems such as anonymous matchingsystems. However, the approach taken by portal systems is not suitableand will not enhance the prices that are available to customers alreadyon the anonymous matching system. The portal approach would integrate abank's streaming prices directly into the anonymous matching system.However, the banks that would provide such price streams already tradeon the matching system and the net effect would not be advantageous tothe bank as there no additional benefit to the bank.

SUMMARY OF THE INVENTION

The invention aims to address this problem. The invention provides asystem and method in which quotes derived from an institution'sstreaming prices are fed into the trading system. This may be via anautomated trading interface. The streaming quotes are assigned a dealcode. Credit limits for that deal code are set to zero for allcounterparties trading on the system to whom the institution does notwant to make its streaming prices available. This may exclude allparties other than other deal codes of the streaming prices institution.The institution providing the streaming prices also has a deal codeproviding prime brokerage to customers. These customers therefore haveaccess to the institution's streaming prices to the exclusion of otherparties trading on the system.

More specifically, there is provided a system for trading productsbetween parties, comprising: a matching system for matching quotessubmitted by counterparties for execution of trades in a product betweenthe parties, wherein parties trading on the system each have a uniquedeal code to identify them to other parties on the system; a quotestream provided by a party trading on the system, the quote stream beingprovided to the matching system and having a unique deal code on thematching system; wherein the matching system further comprises a creditsystem for storing credit limits for trades between each party tradingthe system and each possible counter party and wherein the quote streamdeal code assigns credit only to selected other deal codes, wherebyaccess to the quote stream is restricted.

Embodiments of the invention have the advantage that institutionsproviding prime brokerage are encouraged to make their own proprietaryprice streams available to the system as it increases the attractivenessof their own prime broker services. This benefits the system as a wholeas it increases the overall liquidity of the system. The customersbenefit as they have access to aggregated prices via a single interfacerather than requiring separate interfaces for the trading system and theinstitution's price stream.

Preferably, a plurality of institution provide price streams into thesystem. Each of these providers may also be a prime broker bank andcustomers may be customers of more than one prime broker bank, furtherincreasing the quality of prices available to prime broker customers.

BRIEF DESCRIPTION OF DRAWINGS

Embodiments of the invention will now be described, by way of exampleonly, and with reference to the accompanying drawings, in which:

FIG. 1 is a schematic overview of a system embodying the invention; and

FIG. 2 is an enhancement to the system of FIG. 1.

DESCRIPTION OF PREFERRED EMBODIMENT

An example of a price feed that is produced by a bank is the Autobahnprice feed produced by Deutsche Bank. The Autobahn Electronic Tradingsystem provides Deutsche Bank clients with real-time tradable prices,across numerous fixed-income sectors. This feed includes a stream of FXspot prices that are converted into quotes and then integrated into theEBS spot matching system. The manner in which a stream of prices may beconverted into a stream of quotes is disclosed in our applicationWO2004/012032 entitled Automated Trading System, which is a counterpartof U.S. appln. Ser. No. 10/205,535, the contents of each of which areincorporated herein by reference in their entirety. By application ofthe techniques described in this application, the streaming pricesreceived from this, or any other bank or other institution, may beconverted into a stream of quotes.

Referring now to the figure, the converted streaming quotes 10 from theinstitution are fed directly into the EBS system 12. This is achieved byassigning a deal code to the streaming quotes. In the EBS system, eachtrading floor is assigned a dealing code. This code may be real orvirtual in that it may refer to a physical dealing floor comprising anumber of trader terminals, or a virtual trading floor, such as may beused by a prime broker bank to differentiate between prime broker tradesand trades by its own traders. The deal code is a four-figure code thatis used in all transactions by the trading floor in question. Thus acompleted deal, and the deal ticket generated by that deal, identifiesthe counterparty as a particular deal code.

An anonymous trading system such as the EBS system requires participantsto assign credit to potential counterparties with which it may trade onthe system. The use of credit limits enable a party trading on thesystem to control with whom it trades even though it does not know theidentity of the party submitting a quote into the system. If a partydoes not wish to trade with another party, for example because theyconsider them to be too great a risk, then they assign no credit to thatcounter party. In a preferred embodiment of the invention, all quotesthat are shown to a given party are pre-screened for credit against ayes/no credit matrix so that the only quotes that the party sees, andtherefore the only quotes that the traders can attempt to hit or take,have been submitted by counterparties with whom the party has extendedcredit and to whom credit has been extended by the counterparty. Beforethe deal can actually take place a further credit check takes place toensure that there is sufficient actual bilateral credit remaining forthe proposed trade. This approach to credit screening is disclosed inU.S. Pat. No. 5,375,055 (Togher).

Credit is assigned for a given party by a trading floor administrator(TFA) who assigns credit for that deal code to each possiblecounterparty deal code. Thus, as the streaming quotes 10 received fromthe bank are assigned to a deal code, it will be necessary for credit tobe assigned by a TFA for the streaming prices to all possiblecounterparties on the system. Credit is only assigned to trading floorsthat belong to the same institution. These may be trading floors invarious geographical locations around the world and may include one ormore prime broker deal codes. It will be appreciated that as the tradingsystem pre-screens all quotes for credit, and does not display quotes toparties with whom there is no credit, the institution that streams itsquotes into the system controls who can see those quotes by settingcredit limits to zero for all parties whom it does not want to see, ordeal the quotes.

In a preferred embodiment, the credit limits for the streaming pricedeal code are set to zero for all counterparties except deal codes thatbelong to the institution providing the streaming prices. Thus, theseprices are only available to the bank's own trading community. As wellas the bank's own traders, if this bank is also a prime broker bankwhich makes its credit available to prime broker customers, so thestreaming quotes will also be available to the prime broker customers asthe prime broker customer logs onto the system as the prime broker bankas disclosed in WO 2004/40422 referred to above. The result of thisapproach is that the institution's own customers, trading on the systemthrough the institution as a prime broker, see all the quotes that theywould normally see if they were trading directly on the anonymousmatching system with the prime broker's credit relationships, andadditionally see the prime broker institution's own quote stream. Thisis highly advantageous to the prime broker bank as it enhances theattractiveness of the prime broker bank to potential customers. Not onlywill those customers have access to quotes that they would not see ifthey traded directly on the anonymous matching system, they will alsohave access to quotes that other parties trading on the anonymousmatching system are not able to see. Third parties trading on the systemwill be aware that there are sources of liquidity to which they do nothave access as the EBS system always displays the best quote in themarket as well as the best quote that is dealable by a particulartrading floor. It is a feature of the EBS system that all traders cansee the EBS Best' price. That price is the best price that is in themarket for the instrument being traded. This is attractive to the bankproviding the price stream as it encourages others to sign up as primebroker customers.

Referring back to FIG. 1 the stream of prices 10 from the institution isfirst converted into a stream of quotes via an automated tradinginterface ATI 11 before being submitted to the anonymous trading system12 as quotes originating from the same deal code 1XYZ. The quotes arethen treated in the same way as any other quotes in the system but areonly shown to trading floors of institution XYZ by selection of creditlimits as discussed above. This is represented in FIG. 1 by the arrowextending between deal code 1XYZ and deal code XYZA. Here deal code XYZArepresents a generic deal code under which sit all institution XYZ'strading deal codes. The use of hidden deal codes is disclosed in ourco-pending provisional patent application US Number unknown entitledTrading Systems the content of which are incorporated herein byreference in its entirety.

From deal code XYZA, quotes and deal information are sent to adistributor 14 which distributes the quotes to prime broker customersPBC, to automated trading interfaces ATI and to deal feed clients whichreceive deal ticket information relating to deals. A deal feedconnection DF 16 is provided between the anonymous trading system andthe distributor 14. Deal Feed is a solution provided by EBS Group Ltd togenerate and distribute deal tickets to back office systems forsettlement when deals have been completed. The distributor may be a partof the existing EBS system for distributing market information tocustomers. Thus it may be a market distributor as disclosed, forexample, in U.S. Pat. No. 5,373,055 or it may a broking node asdescribed in WO 01/98960, which is a counterpart of U.S. appln. Ser. No.09/603,523, the contents of each of which are incorporated herein byreference. Any other convenient financial data distribution system maybe used.

FIG. 2 shows a further embodiment of the invention. In this embodimentthere are several prime broker banks each of which supply theirstreaming prices into the system. Thus each of the three deal codesshown: 1XYZ, 1UVW and 1RST is a deal code that receives a stream ofquotes from its own institution and which makes those quotes availableon the anonymous trading system only to its own trading floors and itsprime broker customers by setting credit limits to zero for all othercounterparties on the system. The distributor 14 receives all the quotesfor the XYZA, UVWA and RSTA families of deal codes and distributes themto their customers in the manner described with reference to FIG. 1.However, many of the customers will be prime broker customers of two ormore of the banks and the distributor also functions to blend the pricesso that the prime broker customers only see the best prices that areavailable to them.

It will be appreciated that the embodiments described enable theadditional liquidity achieved by the use of prime brokers and disclosedin WO2004/40422 to be further enhanced by making banks own price streamsavailable to their prime broker customers for trading via the anonymoustrading system. From the customers' point of view this is highlydesirable as they are assured of the best possible prices whilst tradingon a single system, so avoiding the need to use, monitor and subscribeto several systems simultaneously. From the prime broker banks' point ofview it is advantageous as it enhances the value of its prime brokerservice and can therefore increase revenue. From the system operator'spoint of view it is advantageous as it introduces increased liquidityfor selected customers who are largely customers who would normally beunable to trade on the system for lack of credit. This increases thevolume of quotes in the system and so increases liquidity for all usersin the system and revenue to the system operator and thus increases thequality of prices available on the system.

In the system described with respect to FIGS. 1 and 2, the quotesreceived by the institution's customers are aggregated by thedistributor so that the customer sees only the best price, whatever itssource. The institution's own prices are given time priority so that ifthe matching system's prices are the same as the institution's ownprices, the institution's prices are dealt first. In the FIG. 2embodiment two or more institution price streams may have the bestprice. In this case, the customer may select a preferred prime brokerbank.

In the embodiments described, it is possible that prices could becomeinverted leaving the institution supplying its streaming prices to thesystem open to an arbitrage. This may occur, for example, if the pricestream received from the institution runs somewhat slower than theanonymous matching system. The matching system is configured to ensurethat exposure to arbitrage is minimised. This situation arises if theinstitution streaming bid is less than the best dealable offer on thetrading system or the institution's streaming offer is less than thetrading system's best dealable bid. The arbitrage possibility is removedsimply by removing the institution's bid or offer in thesecircumstances.

Prime broker banks may have view-only access to the prices passed toprime broker customers via the distributor. The display to prime brokersindicates the best prime broker customer bid and offer.

In a further embodiment of the invention, other pools of liquidity maybe introduced into the system in the manner described above. Theseliquidity pools may not only be price streams from institutions thatalso act as prime brokers on the system but also may be price streamsfrom other institutions or even quotes from other trading systems.

It should be appreciated that the distributor, which may function toaggregate prices as well as distributing them to prime broker customers,does not perform any matching. Matching of quotes is still performed bythe anonymous trading system in the same manner as in conventionalsystems.

It will be apparent that the distributor is not able to enforce creditrules and merely passes deal attempt messages and rejection messagesbetween the trading system and the prime broker customers. However,within the trading system the institutions' streaming prices are subjectto the same credit rules as other parties to the system. It will beappreciated that the use of credit limits is key to being able to showprices only to the institutions' customers. Trades on streamed pricesare subject to the same post matching credit checks as conventionaltrades on the system. In the same manner, the system does notdistinguish between different quote sources when producing deal ticketsafter trades have been completed.

In an alternative embodiment of the invention, the price streams fromthe institutions are fed directly to the distributor. While thisapproach retains the advantages of being able to distribute streamedprices only to the institution's customers, it cannot service a globalmarket from a single price stream. In practice it is necessary to locatea separate distributor in each major market, e.g. London, New York andTokyo. In the embodiments of FIGS. 1 and 2 a single price feed into thetrading system via an ATI to convert the prices into quotes issufficient as the mechanism of the trading system is designed todistribute quotes to traders around the world. In the EBS system, aclique of arbitrators each having associated broker nodes includingmarket distributors is used. One version of this system is disclosed inU.S. Pat. No. 5,375,055 (Togher) the content of which is incorporatedherein by reference. If the price feed is fed directly to thedistributor then a separate feed is needed for each distributor which isnot preferred.

The system has been described in the context of an FX Spot matchingsystem. However the invention is not limited to such a system and may beused with any system in which credit limits or other parameters areassigned to prevent some parties to the system seeing and dealing quotesinput by other parties to the system. Such a system need not beanonymous. The invention is not limited to any particular financialinstruments but is applicable to any product that can be traded on anautomated trading system.

The conversion of a price stream to a quote stream is not alwaysessential. In some instances, the institution will be able to output aquote stream in which case no further conversion is required by thesystem.

Many alternatives and modifications to the embodiments described arepossible within the scope of the invention and will occur to thoseskilled in the art. The scope of the invention is limited only by thefollowing claims.

1. A system for trading products between parties, comprising: a matchingsystem for matching quotes submitted by counterparties for execution oftrades in a product between the parties, wherein parties trading on thesystem each have a unique deal code to identify them to other parties onthe system; a quote stream provided by a party trading on the system,the quote stream being provided to the matching system and having aunique deal code on the matching system; wherein the matching systemfurther comprises a credit system for storing credit limits for tradesbetween each party trading the system and each possible counter party,and wherein the quote stream deal code assigns credit only to selectedother deal codes, whereby access to the quote stream is restricted.
 2. Asystem according to claim 1, wherein the quote stream deal code assignscredit only to other deal codes of the same institution.
 3. A systemaccording to claim 2 wherein the other deal codes of the sameinstitution includes at least one deal code through which third partiescan trade using the institution as a prime broker.
 4. A system accordingto claim 3, comprising a distributor receiving quotes from the tradingsystem specific to the other deal codes of the institution anddistributing those quotes to customers of the prime broker.
 5. A systemaccording to claim 4 wherein the quotes are distributed to customertrader terminals.
 6. A system according to claim 4, wherein the quotesare distributed to at least one customer automated trading interface. 7.A system according to claim 1, comprising a plurality of streamingquotes each from a different institution.
 8. A system according to claim1, further comprising a stream of quotes input into the trading systemfrom a remote trading system, the quote stream from the remote systemhaving a unique deal code on the trading system.
 9. A system accordingto claim 1, comprising a market distributor for distributing quotes tocounterparties, the market distributor distributing to a givencounterparty only quotes fro mother counterparties with whom the givencounterparty has credit.
 10. An automated trading system for tradingproducts between parties, comprising: a matching engine for matchingquotes submitted by counterparties for execution of trades, eachcounterparty having a deal code identifying the counterparty; a creditmodule for storing credit limits for trades between each deal code andeach other possible deal code of the system; a market distributor fordistributing to counterparties quotes submitted to the matching engine,the market distributor distributing to a given counterparty only quotesfrom counterparties with whom the given counterparty has credit; a quotestream from a third party, the quote stream being provided to thematching engine and having a unique deal code; wherein the quote streamdeal code assigns credit only to selected other deal codes therebylimiting access to the quote stream.
 11. An automated trading system,comprising: a matching engine for matching quotes submitted bycounterparties for executed of trades; a credit module for storingcredit limits for trades between counterparties; a market distributorfor distributing to counterparties only quotes submitted by othercounterparties with whom they have credit; a quote stream from a remotesource, the quote stream being provided to the matching engine; andwherein the credit store includes an assignment of credit from the quotestream to selected counterparties, whereby access to the quote stream bycounterparties is limited.